Product proposals risk hindering innovation

The Financial Services Authority’s proposals on product intervention could stifle innovation in the mortgage market, brokers have warned.

In a feedback statement published last week, the regulator said it would push ahead with proposals that were outlined in its January product intervention discussion paper for a regulatory approach that encompasses the entire life cycle of a product.

This means it could intervene during the design and development stages of a product rather than just at point-of-sale.

Robert Sinclair, director of the Association of Mortgage Intermediaries, says this could hold back innovation.

He says while the mortgage market is unlikely to be the regulator’s main area of concern, it may consider intervening in areas such as high LTV lending which have caused problems in the past.

Fahim Antoniades, group director of Mortgage Centre IFA, says earlier product intervention could encroach not just on innovation, but on the basic principles of a free market economy.

He says: “I think it is dangerous territory for the FSA because if it tells lenders what types of products they can create it is in effect dictating how they make their money.

“The regulator is there to protect consumers but that should not extend to interfering with the commercial aspects of running a business.”

The feedback statement also confirmed that guidelines on treating customers fairly could be turned into more prescriptive rules.

Sinclair says: “At the moment, firms are almost in a position where they have to guess what the regulator wants from the TCF guidelines, so extra clarity will benefit smaller companies that prefer rules to be more prescriptive.”